Strategic Planning and the CFO: How Do They Relate?
Over the years, the role of a CFO has evolved with the expectation that they will have both financial and strategic skills. In practice, it’s rare to find an organization where the CFO has no strategic role to play. With that being said, there has been an increasing focus on the strategic roles of CFOs. In this article, we look at how CFOs approach strategic planning and how the strategy development process works for them.
Strategic Planning Components for CFOs
Strategic planning takes into account the short-term and long-term performance of all aspects of the organization, including profitability, revenue generation, and growth. For CFOs, there are four components that are integral to strategic planning:
Traditionally, finance leaders focus on revenue management as a major component of their strategic focus. The concept of managing revenue provides a way to protect the value of products that have already been developed, as well as to increase revenues and offset the costs of production.
However, CFOs are also focusing on new revenue models, such as recurring revenue and new revenue streams that are complex and sophisticated. For example, major technology companies such as Apple and Google create products that fall under different categories, such as hardware, software, and services.
The concept of managing costs is another crucial aspect of strategic planning for CFOs. Cost management enables organizations to use a combination of frontline and back-office expenses to achieve their goals. The increasing impact of digital technology, such as cloud computing, on the cost side, is also changing the dynamics.
For example, one of the major components of a strategic plan is the ability to close a financing deal. Strategic planning should include monitoring operational costs to ensure that the invested capital is protected and that the project is under budget.
3. Human Capital
Human capital is a key aspect of strategic planning for CFOs. In the early stages of the project, organizations need to focus on the composition, skill sets, and performance of their human capital. It’s imperative for CFOs to understand the human capital and the roles that are needed to achieve the project objectives. During the project, the human capital might need to change as the goals of the project evolve.
CFOs have to constantly evaluate the competitive landscape, including the competitive performance of the company or project against the competition. This competitive analysis should be done in conjunction with a competitive benchmarking tool to determine how the project is performing and if any competitive issues need to be addressed.
Why Strategic Planning Is Important for CFOs
Each of the four components of strategic planning is vital to help achieve the project objectives, and it is important for CFOs to understand their roles in the strategic planning process. The goal of strategic planning is to make sure that the organizations are always addressing the challenges and changes in their environments and that the organizations are able to make decisions that are aligned with the strategic goals.
Partnerships between the businesses, finance, and technology leaders, as well as the use of a robust and strategic planning process, can help CFOs strategically and effectively manage the financial goals of their businesses.
It’s an exciting time to be a CFO, as they play a key role in strategic planning. CFOs are responsible for creating plans for the future and for communicating with the business to develop key strategies and goals. In addition, CFOs must be able to engage with technology providers to create strategies that incorporate innovative solutions.
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